E-commerce in the Middle East: Virtual gold rush

Internet ventures are no longer a mirage in the Arab world. Enthusiasts will remember the era of Arabia.com which is no longer around. The challenges for start ups remain, but the landscape has evolved and is continuing to grow. With the growth of broadband, one key area that illuminates how business is being conducted is e-commerce.

Aramex, the largest online courier in the Middle East, started its shop-and-ship service to help its clients shop overseas what now seems like light years ago. In many ways, one could argue that move has served as a catalyst for other entities that came to the market later. Though the Middle East, compared to other regions, has been slow coming to the market when it comes to e-commerce – mainly due to logistics related to security of transactions, payment execution, technology speed and banks being risk-averse due to the high rate of fraud - the business environment is changing. Things are becoming more accessible.

Today, a growing number of people in the region buy their tickets and book their hotels online, they pay their bills the same way and they do it from local companies rather than from Amazon and eBay.

The value of e-commerce-related transactions is about $11bn a year in the Middle East, according to Jawad Abbassi, founder and general manager Arab Advisors Group. Europe has the largest e-commerce market in the world, growing 19 percent last year, with the total value of the market estimated at 246bn euros, according to figures from the European Multi-channel and Online Trade Association (EMOTA). The North American market is valued at 237bn euros.

Online retail sales now account for around 5.1 percent of the total value of the retail market in Europe, with 240 million e-shoppers spending an average of 1,000 euros each, according to EMOTA.

"People are investing because they're waking up to the fact that this is almost a virgin market and as the broadband penetration rate is increasing, people are using the internet for value-added services," Abbassi says. By end of 2011, there were more than 77.7 million internet users in the Arab World with an internet user penetration of around 22 percent, Abassi says.

Last month, Namshi, an e-commerce site founded less than a year ago, which sells shoes and clothing in the Middle East, said it secured $20m in financing from JP Morgan Chase and Blakeney Management.

Namshi is now set for major regional expansion, says Muhammed Mekki, one of the company’s founders.

"This investment is a turning point," says Mekki, a former executive at consultancy McKinsey & Co, who founded Namshi with partners Louis Lebbos, Hosam Arab, and Faraz Khalid.